The failure of the GBPUSD to hold onto another rebound above 1.3250 last week was of
course all driven by the continued lack of traction on the Brexit front. Personally speaking
given the backdrop of the news last week, I am actually quite surprised that it didn’t fall
below 1.30 again.
Perhaps that was down to rising speculation that the can will be kicked even further down
the road with the implementation of an extended transition period, or some other kind of
interim fudge. That assumes of course, not just a potential proposition from this side of the
channel, but one that would be well greeted in Brussels too.
In a nutshell, all hope and not much more quite honestly and increasingly this all looks
headed to a conclusion that some might argue was always going to be the case. Indeed,
right now, I simply cannot see any reason to dispute such a conclusion either, irrespective of
all this ‘95% agreed’ talk. Only 100% agreed is what really counts and even then; any deal
whatever it is, will still require ratification, not just here, but also from the other 27 EU
member states.
The fact that the Bank of England continue to stress they are ‘preparing for the worst case
scenario rather than hoping for the best’ is something that sure seems in direct opposition
to the government’s stance and a good deal more realistic to boot.
However, whilst a ‘no deal’ departure isn’t a positive for the currency and it will surely fall
hard on such an outcome; its not actually that which worries me the most. It’s what comes
afterwards that is the real danger as far as I am concerned.
May is of course being kept in power by the very people who are also thwarting some of her
Brexit efforts - a most ridiculous irony-but let’s not forget that it was her decision to call an
election in the first place. A singular lack of judgement on her part and one that has
subsequently and completely stymied her ability to negotiate a more flexible Brexit.
Consequently, she is still in a total ‘no win’ position and whilst no one in her party wants to
take that role away from her right now for obvious reasons, that won’t be the case if she
fails to get backing for any kind of deal, or worse still, ‘no deal’ at all.
Either outcome will be swiftly followed by a general election and one which could so easily
deliver a Labour victory. In my opinion; it’s that outcome that will surely sink the currency. If
anyone reading this thinks such an outcome unlikely, then I would strongly urge against
complacency.
So, whilst a hard Brexit could easily see the pound immediately shed another 10% from the
current levels; its nothing compared to the fall out it could suffer from a Labour victory.
Indeed, lump one on top of the other and we could easily be talking about a 30-50% decline.
Well, I’d be the first to admit that does sound scary and to some very unlikely, but I can and
will back that up with some technical studies which underscore such a prognosis and something that you might find more than just a little interesting. However, I am not going to
do that today though, but please watch out for an update with more detail on this before
the week is out. Meantime, I will continue to try and digest the indigestible!
Key data events due this week.
24/10- 3pm Bank of Canada Monetary policy decision
(increase to 1.75% from 1.5% expected)
25/10- 12.45pm ECB monetary policy decision
(no change expected in any of the headline rates)
26/10-1.30pm Second reading of US Q3 GDP